<div>An update on Internet2-NLR merger received from Steve Huter.</div>
<div> </div>
<div>Background information can be found at <a href="http://www.internet2-nlr.org/faqs/today.shtml">http://www.internet2-nlr.org/faqs/today.shtml</a></div>
<div> </div>
<div>____________________<br> </div>
<div>To: NLR Members and the Research and Education Community<br>From: Erv Blythe, NLR Board Chair<br><br>Yesterday the NLR Board of Directors considered a motion to approve the<br>proposed Definitive Agreement relative to the proposed merger with Internet2.
<br>For the second time the motion failed to pass, ending eight months of<br>discussion.<br><br>On August 30 the NLR Board failed to pass the motion to approve the proposed<br>Definitive Agreement. Its vote was based on at least three issues it felt
<br>needed to be resolved, namely, the transfer of NLR assets to the merged<br>organization, the merged organization's commitment to research, and the role of<br>the regional network organizations in the merged organization.
<br><br>At that same meeting the NLR Board nevertheless voted unanimously to continue<br>to pursue a merger with Internet2.<br><br>With the anticipation of being able to negotiate and agree on changes to the<br>Definitive Agreement, NLR sent Internet2 a Memorandum on October 4 that
<br>articulated these three issues and offered draft solutions. The Internet2<br>Board responded by indicating the NLR Board needed to approve the Definitive<br>Agreement "as is".<br><br>In one final attempt to move the merger forward the NLR Board passed a second
<br>resolution on October 21 focused solely on the issue of the transfer of NLR's<br>assets. Again, the Internet2 Board indicated that Internet2 would only accept<br>NLR?s approval of the Definitive Agreement "as is".
<br><br>Left without the opportunity to obtain, what it considered, the absolute<br>minimum but necessary changes to the Definitive Agreement the NLR Board did not<br>approve the unmodified Definitive Agreement.<br><br>One factor in the decision-making process was the unique nature of the NLR.
<br><br>NLR is not a typical 501(c)(3) organization.<br><br>The typical 501(c)(3) organization has corporate documents that do not provide<br>a member with any rights to its contributions to the organization. Instead, a<br>
member's contributions are used for the mission of the organization without any<br>right by the member to its contributions. For instance, the typical 501(c)(3)<br>organization has corporate documents which provide that, upon liquidation and
<br>dissolution, the assets remaining after payment of liabilities are not<br>distributed to its members but shall, instead, be distributed to other exempt<br>organizations as the board of directors may determine in its discretion.
<br><br>The bylaws of NLR require the establishment of "Contribution Accounts"<br>comprised of members' initial "Contributions" that are increased by additional<br>Contributions and decreased by distributions (NLR bylaws). The bylaws also
<br>require NLR to calculate "Contribution Percentages," which are the ratios of<br>each member's Contributions to the total of all member Contributions.<br><br>Based on these concepts the NLR's bylaws specifically includes payment of
<br>consideration for a membership equal to the aggregate Contributions of the<br>member (NLR bylaw Section 6.4(c)) and liquidating distributions to members<br>payable in accordance with the Contribution Percentages of those members (NLR
<br>bylaw Section 8.2(c).)<br><br>Therefore, even though NLR's bylaws permit the board of NLR to cause a merger<br>into another entity, the provisions in NLR's bylaws pertaining to the<br>Contributions of NLR's members had to be considered by the NLR board when
<br>evaluating a merger. For instance NLR was informed by counsel for at least one<br>NLR member that due to the character of member contributions to NLR, the member<br>would need to obtain adequate consideration for its contributions if NLR merged
<br>with another entity. Otherwise, the merger could be considered a gift in<br>violation of state law.<br><br>Absent the ability to change the Definitive Agreement the NLR Board could not<br>adopt the Agreement.<br> </div>